Sparrowisms

April 23, 2013
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You may have noticed the “Trading Food for Thought” section in the right sidebar of the site, where a random quote populates when the page refreshes.

Over the past few years we have collected 2,000 such quotes and counting — some funny, some serious, some thought provoking etcetera.

Among these are sprinkled a few dozen “Sparrowisms” — nuggets of whatever worth (perhaps not much!) from yours truly.

Just for fun, here they all are in one place. (Drink up me hearties, yo ho…)

Sparrowisms (circa April 2013)

“‘Know your own strength’ can be taken as a pessimistic warning or a lofty aspiration. It all depends on how you look at it. But then that’s pretty much true of everything.”

“Great traders can afford to be humble. In the face of ever present uncertainty, their huge profits give them comfort.”

“This is an excellent time to be a flexible, fleet-footed, go-both-ways trader who knows how to scale up low-risk positions. Conversely, for hidebound, stubborn, “set in their ways” long only investors, it is almost the worst environment imaginable.”

“Typical “contrarianism:” Pointing to one’s pathetically conventional target of choice and saying “LOL u guyz r dum so I’m goin 2 do the opposite LMFAO”…”

“You develop some ideas, go forth into the market and try some things. Over time, you build up experience this way. (Profitable or unprofitable, it’s still experience.) Then, having accumulated that experience, you step back to examine and theorize. You analyze what happened and why. You think about the strengths and weaknesses of what you just tried. You start to develop a new round of ideas. You get a sense of where the holes are in your capability, where the most profitable areas of exploration might be.”

“Progressing forward as a trader is a matter of filling in knowledge gaps and connecting abstract concepts with vivid memories of real world application. The absolute beginner is so void of experience he has no idea where his gaps even are. At the point of starting out, all trading knowledge is a swirl of hypotheticals. The trick of advancement, then, is to go back and forth between theory and experience, theory and experience, in a regular intertwined dance.”

“As a general rule of thumb, simplicity beats complexity because simplicity travels light.”

“The crowd is NOT ‘always wrong’… it is only wrong at turning points.”

“Becoming a great trader is an evolutionary process. It’s a series of trial and error transformations, mental map adjustments, and incrementally acquired skill sets, all blended together. And there is no substitute for hypothesizing, testing, and experimenting, with the requirement of organizing one’s thoughts logically and empirical verification serving as the great crystallizer.”

“Financial commentators who don’t actually invest or trade are like sex therapists who don’t have sex.”

“…the one big problem of over-aggressive players is this: They don’t know how to use it sparingly. The beauty of aggression is how powerful it can be when judiciously applied. Selective use of aggression, at supremely appropriate moments, is what makes the value stand out.”

“For traders, work nights are really “school nights:” Rest up and do your homework, or the market will school your ass good.”

“There are few activities so enlightening as to read old books with new eyes.”

“Trading is a curious mix of mostly going with the flow, yet knowing when to selectively fade the flow.”

“Being contrarian at the wrong time is akin to arguing with a herd of cattle.”  

“…the practice of rigorous risk management is more than just preachy self-discipline or boring bean counter talk. Managing risk is a key source of trading longevity, a means of positioning for future profits, and a hallmark of competitive excellence. Smart risk management not only helps preserve capital, it puts money in your pocket by ensuring you have the mental and financial capacity to swing with conviction when the time is right.”

“Today’s mistake is tomorrow’s insight.”

“The greater the number of conditional probabilities — small edges — you have in your favor, the better, and trades are like poker hands in this regard: The “setup,” especially when as thin as a single bar, should be validated or invalidated (taken or passed) based on surrounding factors (much as certain poker hands are either played or not played depending on multiple elements of situational context).”

“Trading is easy, same as poker is easy — just hit your nut flush draws and open-ended straight draws on the turn.”

“Rather than daydreaming of a huge windfall in markets, perhaps traders should proactively seek out windfalls of experience, seasoning and knowledge…”

“The universe is a perfect machine. It cannot put a foot wrong.”

“Knowing when to “get a hunch and bet a bunch” is not so much a matter of luck. It is more a matter of hard work, intuition and experience, coupled with a dedicated focus on being in touch with the ebb and flow of markets from day to day. In other words, the hard work of being deeply in tune with markets — and justifying your convictions through constant interaction and hypothesis testing at lower risk levels — is precisely what fuels the winning combination of careful and conservative 90% of the time plus balls-out aggressive 10% of the time. You earn the right to swing, and just as importantly the insight as to when to swing, through consistency, diligence, and dedication.”

“Rare is the blessing that bears no resemblance to curse.”

“In secular bear markets, fighting general conditions is an expensive habit. Wall Street is addicted to this habit by design.”

“Markets have a distinct game theory component in that, the fewer the total number of survivors after a “wash and rinse” period, the greater the future opportunity that comes available (with comparatively few left to exploit it). To put it another way: If the money always came flying in through the window, too many profit seekers would crowd the window. Pain facilitates gain by blocking the pathways of the insufficiently persistent, motivated and seasoned.”

“Theory without practice only survives in the suspended animation chambers of academia and government, where political survival skill, ideological purity, and self-perpetuating mediocrity (plodders promoting plodders) outweigh actual usefulness or merit.”

“Life is a race. Death is the finish line. The objective is to go out with the highest score possible — not in terms of dollars earned or battles won, but a life most fully lived.”

“Wall Street is populated by conventional thinkers, serving compromised ends, in the confines of a broken system.”

“The beating heart of creativity is a passionate commitment to exploring, testing and discarding new ideas.”

“As the saying goes, “If you’re going to bet the farm, have two farms.” This is taken as a warning not to risk too much. But you can also look at it like this: After building a cushion of profits over an excellent trading period, you can take a goodly portion of that profit and treat it as your “second farm,” making a large bet with a limited risk options position (assuming the conviction-based opportunity is there). If you are wrong, you wind up having a good year instead of a great year. But if you are right, you go from a great year to an absolutely fantastic year – without ever placing your original farm at risk. Knowing how to do this, and how to do it properly without unduly increasing mortality risk or initial capital risk, is one of the hidden factors rarely talked about that puts some traders head and shoulders above the rest, in respect to their ability to deliver superior risk-adjusted returns.”

“The best “plungers” will not be those inclined to plunge by dint of gambling nature, but rather those with a calculated risk taker’s soul and a deep and passionate desire to win – even a ferocious desire to win — with the understanding that excellent opportunities do not grow on trees and should be played to the hilt (while limiting risk) when such comes available.”

“Perpetual pessimists are fools, as are perpetual optimists. There are times for both in proper measure… an inflexibility of perspective is a sign of ideological distortion and / or mental weakness.”

“Fear is an impediment to clarity. So is greed.”

“It is wise to avoid predictions when possible, and to recognize that the scope of accurate prediction making is very limited. Successful macro trading is much less about “knowing” what is going to happen in future, and much more about having a handle on odds, probabilities and scenarios, without growing attached to any single one, and then acting fluidly in the moment as the picture crystallizes in actionable ways.”

“The best traders and mentors are humble on a profound level, because they understand what an awesome force of nature the market is. Thinking you can “conquer” the market, or that you are somehow bigger than the market, is like a mountain climber thinking he is bigger than Mt. Everest. True practitioners laugh at such notions – which are actually not funny, in a way, because they get a lot of folks killed.”

“Government is to efficiency as Britney Spears is to gravitas.”

“Follow your own path, seek out what has worth to you, and who gives a shit about what’s said from the side of the road.”

“Truly excellent traders are open to the fact they have flaws. Truly excellent traders are realistic about the fact that all methodologies have strengths and weaknesses, and that a constant incremental process of improvement and evolution must be applied over time. Truly excellent traders reflect on mistakes they have made in the past, and recognize that, as much as they hate it, they will make mistakes in future. Truly excellent traders are proud of their skills, and yet deeply humble, because they know the market is bigger than any one man and that new challenges are constantly arising.”

“Cloaking one’s statements in mysterious impenetrable gibberish, instead of speaking clearly and plainly, is a classic device of oracles, shamans, gnostic seers, and other such shepherds in search of gullible sheep. The trick is in getting your acolyte to misinterpret complexity and opacity as hallmarks of a secret knowledge. Then, once hooked, said acolyte can be exploited, perhaps indefinitely, as he strains and struggles to understand the secrets for himself. The more gibberish that the shepherd speaks, the more entranced the sheep becomes.”

“You don’t have to be a genius in this business, but you can’t be a moron.”

“If you can preserve your financial and mental capital when others have depleted or squandered theirs, the long-term rewards will be great.”

“Every path chosen precludes an infinite number of alternative paths.”

“Tuition that can be measured in a handful of basis points is wonderful stuff indeed.”

“In their worship of logic and rationality, economists are amusingly short-sighted and irrational.”

“When everyone 95% agrees on something — home prices will never decline, China can’t be stopped, commodities can’t go down, etc. — there is real risk of ‘everyone’ taking a frying pan to the face.”

“There’s practice, and then there is deep practice. All too often, the first is a waste of time.”

“Patience is required most when one desires to apply it least.”

[On a message board:]“Every time we clash I get the impression we’re on different floors of a building. You’re first level, I’m fourth level, and I keep urging you to use the stairs.”

“The truly skilled poker player — and all the more so the truly skilled trader — is not just a fighter. He is also an artist, a statistician, and a student of human nature, all rolled into one.”

“Winners evolve.”

“Academic assertions that outperformance is impossible pose a useful sort of litmus test. If one is cowed enough by the dogma to accept mediocrity as inevitable, then one most likely lacks the drive, the talent or the intellect (or some combination of the three) to achieve excellence in the first place.”

“Some assert that currency issuing governments are “not operationally constrained.” This is pedantically true in the sense that a man standing at the edge of a cliff is not operationally constrained. He can throw himself off, but that doesn’t mean he can fly.”

JS (jack@mercenarytrader.com)

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3 Responses to Sparrowisms

  1. FXGuy on April 24, 2013 at 6:09 am

    Brilliant!

  2. Mark Humphrey on May 3, 2013 at 12:32 am

    Hello guys:

    I admire what you’re doing, both with respect to your trading success and your teaching-training efforts. I read your advice and think about it.

    In a recent article, you wrote that a key to trading expertise is this: entering trades only following prior price confirmation. My guess is this means waiting for price to fall from significant support, before selling short (or rising through resisitance before buying…).

    If you think it helps your cause, you might want to elaborate sometime.

    Many thanks for your helpful essays. Everything these days is a trade–not an investment. So you advice is valuable.

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